Social Enterprise – the fledgling fourth sector

by Chip Feiss, The Financial Times; 15 June 2009.

There are signs that social enterprise, or the fledgling fourth sector, is strong and growing. The article cites the explosion of nonprofit organisations across the globe and the upsurge of socially responsible investment funds. Mainstream financial press (such as The Financial Times) has recognised the rapid growth of the fourth sector; and top tier business schools have begun to offer courses in social enterprise. Yet many still wonder: what is it?

According to this article, a social enterprise is an entity that utilises private investment to address a social issue, e.g. homelessness, poverty, or environmental degradation. A social enterprise can be either for-profit or non-profit. Some are even hybrid models that blend financial and social returns. A social enterprise operates like a business with social purpose at its core.

Some powerful economists remain skeptical about this new model. The article quotes President Barack Obama’s economic adviser, Larry Summers, who wrote:

“It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.” A certain amount of healthy skepticism may well be justified. It is hard to pursue a dual strategy of profits and social returns.

The article points to two main barriers to a flourishing social enterprise sector: scale and a supportive regulatory environment. First, tackling some of the global challenges social enterprises aim to address requires that they reach sufficient size. To achieve scale, social enterprises need appropriate corporate structures, tax policies, and rigorous and uniform social impact metrics.

Social enterprise could be a $500billion-a-year sector of the global economy within the next five to ten years according to some estimates. It may well be time to take a serious look at this fledgling sector.

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